Stephen Taylor is UTS Distinguished Professor of Accounting at the University of Technology Sydney, and is also a member of the Australian Accounting Standards Board. He is a Fellow of the Academy of Social Sciences in Australia, and serves as a member of their Finance Committee. During 2016-17, Stephen served as the inaugural Australian Business Deans’ Council Research Scholar, a position focussed on improving the quality and impact of research in Australian business schools, as well as research training. From 2009-2015 inclusive, Stephen served as Associate Dean-Research in the UTS Business School, culminating in their ranking as equal third in Business and Economics in the 2015 ERA results. For the 4 years 2012-2015, Stephen also served as Chair of the representative group of Australian and New Zealand business ADRs, BARDsNet. Stephen has been a member of the ERA panel for Economics and Business for the 2015 and 2018 assessments.
Immediately before joining UTS in August 2008, Stephen was Professor of Accounting at the UNSW School of Business, where he also served as Acting Assoc Dean (Research) in 2005-2006. He has a PhD from UNSW (Australian Graduate School of Management) and is a Chartered Accountant (FCA). He was first appointed to a Chair of Accounting at the University of Sydney in 1995, where he also served as Academic Director of the Accounting Foundation. In 2001 and 2002 he served as head of the School of Accounting at the University of Technology Sydney. Stephen has also been a Visiting Professor at the University of Michigan (Ross Business School) in 1993-4 and 1999-2000. In 2008, Stephen was the Don Trow Fellow at Victoria University, Wellington.
Apart from his leadership roles within the university community, Stephen has also had significant external industry and governance experience. He is currently a director of the Rozetta Institute and chairs the Audit and Risk Committee. He was previously a director of both organizations from which Rozetta was formed, namely SIRCA and the Capital Markets Co-Operative Research Centre (CMCRC). He was instrumental in the early development of a CMCRC program directed towards the identification and measurement of accounting manipulation and ultimately, fraudulent financial reporting. This program received significant financial support and participation from Ernst and Young.
Stephen’s teaching and research are in the area of Financial Statement Analysis and Valuation. He has wide experience teaching at both the undergraduate and MBA levels, especially in the areas of accounting-based valuation models, investment analysis and financial reporting. He has been a presenter in many executive education courses and has provided expert advice to a wide range of private and public sector organizations, including as an expert witness in Australia and overseas. For over a decade Stephen was Academic Advisor to Plato Funds Management. He also co-ordinated the research program established by ASIC to undertake a statutory review of the Enhanced (Continuous) Disclosure Regime.
Stephen’s research has been published in leading international journals, including the Journal of Accounting and Economics, Review of Accounting Studies, Contemporary Accounting Research, Journal of Accounting and Public Policy, Journal of Financial and Quantitative Analysis, Journal of Banking and Finance, and Journal of Corporate Finance. He has twice received the best paper prize from the Accounting and Finance Association of Australia and New Zealand. He is a member of several editorial boards including Contemporary Accounting Research and Auditing: A Journal of Practice and Theory. Stephen is Co-Editor of the International Journal of Accounting, as well as being an editor of the Journal of International Accounting Research. From 2012-2015, Stephen served as an Associate Editor of Accounting Horizons, the journal published by the American Accounting Association with the specific intent of broadening the application and readership of accounting research.
Apart from his involvement with the Capital Markets CRC, Stephen has received many large ARC Grants (Discovery and Linkage), as well as substantial funding from the Centre for International Finance and Regulation (CIFR), which he helped establish in 2013. He also currently serves the ARC as an expert assessor for International Linkage, Federation Fellowship and Discovery applications.
Fellow, Academy of Social Sciences in Australia (FASSA)
Fellow, Chartered Accountants Australia and New Zealand (FCA)
Member, Australian Institute of Company Directors (MAICD)
Can supervise: YES
Financial reporting; economics of auditing; corporate governance; corporate finance.
Financial statement analysis; financial analysis; business valuation; financial accounting and capital markets research.
Whittred, G, Zimmer, I & Taylor, SL 1999, Financial accounting: Incentive effects and economic consequences, 5, Harcourt Brace, Sydney.
Whittred, G, Zimmer, I & Taylor, SL 1996, Financial accounting: incentive effects and economic consequences, 4, Harcourt Brace, Sydney.
Le, CHA, Shan, Y & Taylor, S 2020, 'Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions', AUSTRALIAN ACCOUNTING REVIEW.View/Download from: Publisher's site
© 2019 Accounting and Finance Association of Australia and New Zealand We construct a measure of the speed with which forecasts issued by sell-side analysts accurately forecast future annual earnings. Following Marshall, we label this measure earnings information flow timeliness (EIFT). This measure avoids the aggregation problem inherent in price-based measures of information efficiency. We document large variation in EIFT across firm-years, and show that EIFT is positively associated with the extent of analyst following, consistent with increased analyst coverage improving the speed with which earnings-related information is recognised. We also find that EIFT is higher for firm-years classified as 'bad news' (i.e., where analysts' forecasts at the start of the financial period exceed the reported outcome). However, when we separately consider instances where analysts appear to forecast non-GAAP (or 'street') earnings rather than GAAP earnings, we find that the greater timeliness of bad news is concentrated among observations where analysts forecast non-GAAP earnings, where unusual items are typically excluded. We conclude that the market for accounting information is more efficient for negative operating outcomes than for negative outcomes reflecting unusual items.
He, W, Sidhu, B & Taylor, S 2019, 'Audit quality and properties of analysts' information environment', Journal of Business Finance and Accounting, vol. 46, no. 3-4, pp. 400-419.View/Download from: Publisher's site
© 2018 John Wiley & Sons Ltd We consider how audit quality impacts sell-side analysts' information environment. Using the method outlined by Barron et al., we examine whether higher audit quality is associated with differences in the weight analysts place on common information relative to private information, as well as the extent to which audit quality separately impacts the precision of analysts' private and common information. Our results show that, in instances where analysts revise their earnings forecasts for year t+1 shortly after the release of year t earnings, higher audit quality results in analysts placing more weight on public information. The precision of private (as well as public) information is improved. These results extend our understanding of how audit quality impacts on attributes of analysts' forecasts and provides support for the argument that audit quality has important capital market implications.
© 2019 Accounting Foundation, The University of Sydney Using a large sample of earnings press releases by Australian firms, we compare multiple attributes of non-GAAP earnings measures with their closest GAAP equivalent. We find that, on average, non-GAAP earnings are more persistent, smoother, more value relevant, and have higher predictive power than their closest GAAP equivalent. However, the same set of non-GAAP earnings disclosures are also less conservative and less timely than their closest GAAP equivalent. The results are consistent with non-GAAP earnings measures reflecting a reversal of the trade-off between the valuation and stewardship roles of accounting inherent in accounting standards and the way they are applied. We also find that differences in several of these attributes between GAAP and non-GAAP earnings are more evident in larger firms, firms with lower market-to-book ratios, firms with a higher proportion of independent directors, and firms that report profits rather than losses. Our evidence is consistent with the argument that accounting standards impose significant amounts of conditional conservatism at some cost to the valuation role of accounting information. Non-GAAP earnings measures can therefore be seen as a response to the challenges faced by a single GAAP performance measure in satisfying the competing demands of value relevance and stewardship.
Coulton, J, Livne, G, Pettinicchio, AK & Taylor, SL 2016, 'Abnormal Audit Fees and Accounting Quality'.
We investigate the extent to which the overvaluation hypothesis provides incentives for managers to beat earnings benchmarks, and whether this benchmark beating can be reliably interpreted as evidence of earnings management. We carefully identify firms immediately above earnings benchmarks that have a priori, overvaluation-based incentives to achieve the benchmark. We therefore focus on benchmark-beating observations where manipulation is most likely, providing a more powerful test of the existence of opportunistic financial reporting. Consistent with overvaluation-related incentives encouraging earnings management, we find that overvalued firms that just exceed levels-related earnings benchmarks have higher unexpected accruals than firms with less extreme valuations.
Jin, K, Shan, Y & Taylor, S 2015, 'Matching between revenues and expenses and the adoption of International Financial Reporting Standards', Pacific-Basin Finance Journal, vol. 35, no. Part A, pp. 90-107.View/Download from: Publisher's site
We examine changes in the matching between contemporaneous revenues and expenses in Australian financial reporting. Matching is fundamental to the economic demand for accrual accounting in preference to simple cash measures. Our results indicate that the revenue–expense relation has declined in Australia during 2001–2005, but improved following implementation of International Financial Reporting Standards (IFRS). The improvement is largely attributable to increases in the association of operating expenses and "other" expenses with contemporaneous revenues. These results are in sharp contrast to documented declines in matching among US firms, and also highlight a positive outcome associated with Australian firms' mandatory adoption of IFRS.
Coulton, JJ, Ruddock, CMS & Taylor, SL 2014, 'The Informativeness of Dividends and Associated Tax Credits', Journal of Business Finance & Accounting, vol. 41, no. 9-10, pp. 1309-1336.View/Download from: Publisher's site
Shan, Y, Taylor, S & Walter, T 2014, 'The role of "other information" in analysts' forecasts in understanding stock return volatility', Review of Accounting Studies, vol. 19, no. 4, pp. 1346-1392.View/Download from: Publisher's site
This study identifies "other information" in analysts' forecasts as a legitimate proxy for future cash flows and examines its incremental role in explaining stock return volatility. We suggest that "other information" contains information about fundamentals beyond that reflected in current financial statements and reflects firms' fundamentals on a more timely basis than dividends or earnings. Using standardized regressions, we find volatility increases when current "other information" is more uncertain and increases more in response to unfavorable news compared to favorable news. Variance decomposition analysis shows that the variance contribution of "other information" dominates that of expected-return news. The incremental role of "other information" is at least half of the effect of earnings in explaining future volatility. The results are more pronounced for firms with poor information environments. Overall, our results highlight the importance of including "other information" as an additional cash-flow proxy in future studies of stock prices and volatility. © 2014 Springer Science+Business Media New York.
Lai, C, Li, Y, Shan, Y & Taylor, SL 2013, 'Costs of mandatory international financial reporting standards: Evidence of reduced accrual reliability', Australian Journal of Management, vol. 38, no. 3, pp. 491-521.View/Download from: Publisher's site
This study investigates the impact of mandatory adoption of international financial reporting standards on accrual reliability. Using a large sample of Australian firm-years drawn from before and after the mandatory adoption of international financial reporting standards, we find that accrual reliability declined significantly after mandatory international financial reporting standards implementation. Working capital, non-current operating, and financing accruals all contribute to this decline. We also find that brand name audit firms (i.e. the Big four) are able to significantly attenuate any decrease in accrual reliability during the post international financial reporting standards period. Our results contrast with evidence identifying benefits of mandatory international financial reporting standards, such as increased value relevance, but are consistent with at least some degree of trade-off between relevance and reliability. Such trade-offs seem to have been largely ignored in prior examinations of the impact of mandatory international financial reporting standards.
Shan, Y, Taylor, SL & Walter, TS 2013, 'Fundamentals or managerial discretion? The relationship between accrual variability and future stock return volatility', Abacus, vol. 49, no. 4, pp. 441-475.View/Download from: Publisher's site
This paper extends the theoretical framework of Callen and Segal (2004) and Vuolteenaho (2002) to investigate the association between accrual variability and firm-specific risk. The empirical evidence supports our prediction that increased uncertainty in accounting accruals is associated with significantly higher volatility of future stock returns, and the results are valid for measures of both systematic and idiosyncratic volatility. However, when accrual variability is decomposed into fundamental and discretionary portions, we find that the positive relationship between accrual variability and future stock return volatility is dominated by the fundamental component of accrual variability. Our findings therefore support the conclusion that the market places little weight on information conveyed by that component of accounting accruals that is most likely to reflect accounting choices, implementation decisions and managerial opportunism.
The last 40 years have seen an extensive literature documenting so-called anomalies in major capital markets. Evidence of abnormal returns associated with trading strategies based on readily observable phenomena such as accounting-based data involves experimental design choices that can be expected to influence the results. We show how evidence of an accrual anomaly in Australia is sensitive to research design specifications such as the choice of proxy for total accruals; the definition of abnormal returns (i.e. the return generating model); the impact of data trimming as a response to exceptionally large returns; and the choice between value and equal weighting of returns. We show that research design choices do matter and help reconcile conflicting prior evidence of any accrual anomaly in Australia. More broadly, our results suggest the need for caution in drawing inferences from trading strategy tests which claim to identify anomalies.
Christy, JT & Taylor, SL 2011, 'Profit or prophet? A Case Study of the Reporting of Non-GAAP Earnings by Australian Banks', Australian Accounting Review, vol. 21, no. 4, pp. 327-339.View/Download from: Publisher's site
Australian firms increasingly highlight earnings results that do not conform to the definition of profit under generally accepted Australian accounting principles (GAAP). We compile a detailed description of the differences between GAAP and non-GAAP earnings for each of the four largest Australian trading banks for the years 2003 to 2008. Our evidence shows that each of the major banks has a history of reporting what are typically termed 'cash earnings' or 'underlying earnings~ However, the definition of these terms is not consistent between banks, nor does it appear to be consistently applied by individual banks over time. Interestingly, the switch to Australian International Financial Reporting Standards has a noticeable impact on the definition of non-GAAP earnings. The data we summarise raises questions about the role of GAAP earnings versus non-statutory definitions of financial performance voluntarily provided by firms themselves. More broadly, the ability of firms to 'self-define' outcomes presents a significant challenge to capital market regulators such as the Australian Securities and Investments Commission.
Taylor, SL & Wong, L 2010, 'The Accrual Anomaly in Australia: A Closer Look at Trading Strategy Returns'.
Li, Y, Stokes, DJ, Taylor, SL & Wong, L 2009, 'Audit Quality, Accounting Attributes and the Cost of Equity Capital'.
In examining the possible contribution that accounting research can play in ensuring effective and efficient regulation of securities markets, two principal opportunities stand out. First, the role of research in informing debate about proposed regulator
We seek to understand the ever-increasing push towards the international harmonization of accounting standards and particularly the inexorable rise of standards produced by the International Accounting Standards Board (IASB). While the primary justifications for the increasing recognition given to these standards (IFRS) are economic, we question whether the empirical evidence to date has yielded convincing support for these arguments. We therefore offer an alternative explanation for the origin and diffusion of IFRS that incorporates social and political factors. Outsourcing the manufacture of accounting standards to a single private agency appears to be a rational, lower cost option lowering both economic and political costs for individual states as long as they continue to retain residual decision rights with respect to the adoption of IFRS. However, such outsourcing must also be perceived to be legitimate. IFRS confer institutionalized legitimacy because they possess three characteristics required of a technology for global governance. These are sponsorship by powerful interest groups/regulators, internationality and plasticity. We therefore conclude that the widespread diffusion today of IFRS can at best be only partially explained as an economically rational phenomenon. Rather, the demand for legitimate action in the face of tightly coupled and complex global markets is at least equally important in generating support for IFRS.
Lai, C & Taylor, SL 2008, 'Estimating and validating a firm-year-specific measure of conservatism: Australian evidence', Accounting And Finance, vol. 48, no. 4, pp. 673-695.View/Download from: Publisher's site
We provide new evidence on the asymmetric timeliness with which economic gains and losses are recognized in Australian financial reporting (i.e. conservatism), as well as some of the factors associated with variation in conservatism. We first derive, and
Balkrishna, H, Coulton, JJ & Taylor, SL 2007, 'Accounting losses and earnings conservatism: Evidence from Australian generally accepted accounting principles', Accounting and Finance, vol. 47, no. 3, pp. 381-400.View/Download from: Publisher's site
We provide evidence on three important aspects of Australian financial reporting; namely, the characteristics of losses, the extent to which Australian firms earnings are conditionally conservative (i.e. bad news is reflected in earnings more quickly than good news) and the extent to which losses reflect incrementally greater conditional conservatism. We find evidence that loss incidence in Australia is frequent, with around 40 per cent of the sample firm-years from 1993 to 2003 being losses. Losses are also surprisingly persistent, and the probability of loss reversal declines monotonically as the history of losses extends. Although conditional conservatism is also shown to be a pervasive aspect of Australian Generally Accepted Accounting Principles, we demonstrate that it is more evident among loss observations. This result is robust across different methods of capturing conditional conservatism, and supports the conclusion that the relatively high frequency of losses is, at least in part, a reflection of conservative reporting.
Bayley, L & Taylor, SL 2007, 'Identifying Earnings Overstatements: A Practical Test'.
Coulton, J, Ruddock, CMS & Taylor, SL 2007, 'Audit Fees, Non-Audit Services and Auditor-Client Economic Bonding'.
Lee, PJ, Taylor, SB & Taylor, SL 2006, 'Auditor conservatism and audit quality: Evidence from IPO earnings forecasts', International Journal of Auditing, vol. 10, no. 3, pp. 183-199.
We investigate the relation between a proxy for differential audit quality and both the (ex post) accuracy and conservatism of audited earnings forecasts provided in Australian initial public offering (IPO) prospectuses. For the period we examine, most Australian IPO prospectuses include an earnings forecast (i.e., disclosure is not 'voluntary'), and the auditor must be satisfied prior to signing off on the prospectus. After controlling for other factors associated with forecast error, there is some evidence that forecasts audited by Big 6 auditors prove more accurate than those audited by a non-Big 6 auditor, although this result is not robust across alternative measures of forecast accuracy. In contrast, our finding of significantly less optimistic bias for forecasts associated with Big 6 auditors is robust to alternative measures of forecast bias. We interpret these results as being consistent with the argument that the economic demand for differential audit quality reflects the same factors that underlie the demand for conservative financial reporting
Ruddock, C, Taylor, SB & Taylor, SL 2006, 'Nonaudit services and earnings conservatism: Is auditor independence impaired?', Contemporary Accounting Research, vol. 23, no. 3, pp. 701-746.View/Download from: Publisher's site
We examine whether the provision of nonaudit services (NAS) by incumbent auditors is associated with a reduction in the extent to which earnings reflect bad news on a timely basis (that is, news-based conservatism). Reduced conservatism is expected to occur if relatively high levels of NAS result in reduced auditor independence and ultimately, lower-quality auditing. Because client-specific demand for NAS is expected to vary, our proxy for the auditor-client economic bond is the extent to which NAS purchases (relative to audit fees) are greater or less than expected. Using several different methods for identifying news-based conservatism, we consistently find that higher than expected levels of NAS are not associated with reduced conservatism. This result is robust to allowing for endogenous NAS demand, as well as several explicit factors that may be associated with differences in conservatism. Similar conclusions arise from tests that use alternative measures of the economic bond between auditors and their clients, as well as in tests confined to either The Big 6 or non-Big 6 audit firms. Our results are consistent with factors such as market-based incentives, the threat of litigation, and alternative governance mechanisms offsetting any expected benefits to the audit firm from reducing its independence. We therefore conclude that recent legislative intervention aimed at restricting the supply of NAS is unlikely to result in increased independence in fact, although independence in appearance may be improved
Ruddock, CMS, Taylor, SJ & Taylor, SL 2006, 'Non-Audit Services and Earnings Conservatism: Is Auditor Independence Impaired?', Contemporary Accounting Research, vol. 23, pp. 3-3.
Coulton, JJ, Taylor, SB & Taylor, SL 2005, 'Is 'benchmark beating' by Australian firms evidence of earnings management?', Accounting and Finance, vol. 45, no. 4, pp. 553-576.
We investigate the extent to which Australian firms that report small profits and/or small increases in earnings (i.e. benchmark beaters) have done so by the upward manipulation of these earnings. Although evidence of an unusually large number of firms managing to just beat such earnings benchmarks has been interpreted as evidence of earnings management, this approach fails to identify those firms that are the manipulators from those where unbiased earnings fall naturally into the benchmark beating group. Our results suggest that caution is required in interpreting benchmark beating as an indicator of the extent of earnings management. Using several methods for estimating the unexpected accrual component of earnings, we show that although benchmark beaters have larger positive unexpected accruals than other firms, a similar result holds when firms with small losses or earnings declines (i.e. 'just miss' firms) are compared with other firms. Moreover, there is no statistically significant difference between unexpected accruals for the benchmark beating and just miss groups. At a minimum, we reject the joint hypothesis that unexpected accruals capture earnings management and that an unusual kink around zero in the distribution of earnings levels or earnings changes is caused by earnings management.
Hamilton, J, Ruddock, CMS, Stokes, DJ & Taylor, SL 2005, 'Audit Partner Rotation, Earnings Quality and Earnings Conservatism'.
Balatbat, M, Taylor, SL & Walter, TS 2004, 'Corporate governance, insider ownership and operating performance of Australian initial public offerings', Accounting and Finance, vol. 44, no. 3, pp. 299-328.
We examine ownership structures and corporate governance attributes of 313 Australian initial public offerings (IPOs) between 1976 and 1993 and their relation with up to 5 years of post-listing operating performance, adjusted for similar (non-IPO) firms. Consistent with prior share price-based evidence, we find that the operating performance of Australian IPOs typically deteriorates over the first 4 post-listing years. Any evidence of a positive association between insider ownership and firm performance is confined to the fourth and fifth years after the IPO. Evidence of a positive relation between institutional ownership and performance is restricted to the latter part of our 5-year post-listing window. Board composition (i.e. outsider versus insider control) is not associated with operating performance, although there is some evidence that independent board leadership is associated with better operating performance.
Coulton, JJ & Taylor, SL 2004, 'Directors duties and corporate governance: have we gone too far?', Australian Accounting Review, vol. 14, no. 1, pp. 17-24.
Recent policy initiatives in Australia, such as corporate governance reporting requirements and innovations in defining directors' roles and responsibilities, are reviewed. It is argued that such initiatives are often premised on overly simplistic models of the role played by directors. The role and effectiveness of directors vary according to the economic activity of the firm. Uniform guidelines for board composition, for example, are unlikely to be economically desirable. Likewise, statutory definitions of directors' duties are unlikely to be effective unless they allow for directors' roles to vary according to circumstance. Conversely, broad legal definitions will be problematic because of uncertainties in judicial interpretation.
Lee, M, Lee, PJ & Taylor, SL 2003, 'Unit initial public offerings: stages equity or signaling mechanism?', Accounting and Finance, vol. 43, no. 1, pp. 63-85.
We investigate the use of unit (i.e., package) initial public offerings by Australian industrial firms and conclude that their use reflects their role as a signaling mechanism (Chemmanur and Fulghieri, 1997), as distinct from the agencycost explanation offered by Schultz (1993). From a sample of 394 IPOs between 1976 and 1994, the 66 firms making unit offerings are typically riskier, use less prestigious underwriters and have a lower level of retained ownership than other IPO firms. While these results are also consistent with Schultzs agency cost explanation, other results we report are not. We find no difference in underpricing etween unit IPOs and other IPO firms, nor are there any significant differences in the planned uses of proceeds reported in the prospectus, postlisting failure rates or secondary equity offerings of the type predicted by Schultz. We do however, report evidence consistent with a prediction unique to the signaling explanation. After controlling for the level of ownership retained by insiders, the proportion of firm value sold as warrants is increasing in IPO firms riskiness.
Lee, PJ, Stokes, D, Taylor, SL & Walter, TS 2003, 'The association between audit quality, accounting disclosures and firm-specific risk: evidence from initial public offerings', Journal of Accounting and Public Policy, vol. 22, no. 5, pp. 377-400.View/Download from: Publisher's site
Coulton, JJ & Taylor, SL 2002, 'Accounting for executive stock options: a case study in avoiding tough decisions', Australian Accounting Review, vol. 12, no. 1, pp. 3-10.
The development of accounting requirements for executive stock options (ESO) is reviewed, and it is found that the standard-setting process has been susceptible to pressure groups, including the corporate sector, politicians, and even the accounting profession itself. The failure of Australian and overseas accounting regulators to take tough decisions may have created a systematic bias toward the use of ESOs, which can result in grossly inefficient compensation structures motivated by a desire to maximize reported profits rather than to create optimal managerial incentives. Most of the arguments against recognition of stock option expense can be dismissed as blatant self-interest at worst, or remarkably muddled thinking at best.
Coulton, JJ & Taylor, SL 2002, 'Options awards for Australian CEOs: The who, what and why', Australian Accounting Review, vol. 12, no. 1, pp. 25-35.
The compensation structure for Australian CEOs, and especially the extent to which they receive executive stock options, is explored. Evidence suggests that the award of executive stock options is common in Australia, but not in as systematic a manner as has been documented for US CEOs. Where ESOs are awarded, they form a significant component of total compensation, even allowing for limitations in the way their value is approximated. Modeling the use of ESOs shows relatively few empirical regularities, other than a positive association between firm size and ESO use. This is consistent with a view that ESOs are a form of rent extraction by CEOs, but it may also reflect a bias toward their use created by accounting rules.
Culvenor, JM, Stokes, D & Taylor, SL 2002, 'A review of the proposals for reform of independence of Australian company auditors', Australian Accounting Review, vol. 12, no. 27, pp. 12-23.View/Download from: Publisher's site
The Ramsay Report on the Independence of Australian Company Auditors, released in October 2001, contains a review of the current Australian requirements and proposals for reform of the rules and regulations governing auditor independence. In this paper we provide a critical examination of these proposals, in conjunction with any underlying rationale offered in the report. Assuming the onus of proof rests with the proponents of change, we argue that the justification for regulatory change is not well made. We pose a series of questions about the proposals and their potential economic consequences. Many of these questions are empirical and provide opportunities for further research.
Lee, PJ, Taylor, SJ & Taylor, SL 2002, 'Auditor Conservatism and Audit Quality: Evidence from IPO Earnings Forecasts'.
Coulton, J, James, C & Taylor, SL 2001, 'The Effect of Compensation Design and Corporate Governance on the Transparency of CEO Compensation Disclosures'.
Choon, H, Smith, M & Taylor, SL 2000, 'What do Australian annual reports say about future earnings?', Australian Accounting Review, vol. 10, no. 1, pp. 17-25.
Among available 1990 and 1995 annual reports for the 150 largest ASX listed firms as at June 30, 1996, about 25% of firms provided some form of prospective earnings disclosure. However, these disclosures tended to be qualitative rather than quantitative, and any association between the direction of the implied change in earnings and the subsequent actual earnings change is not consistent between the 2 periods sampled. These results suggest that encouraging the provision of prospective earnings information as part of a report's management discussion and analysis may not produce benefits for investors, unless the resulting disclosures are of a higher quality than those which have been provided without any official encouragement to do so. The study provides evidence that forecasts and non-forecasters differ systematically in respect of likely product market competition, firm size, asset structure, ownership structure, audit quality and whether they are cross-listed on overseas stock exchanges. These results reinforce concerns that attempts to increase the extent of forward-looking earnings disclosures may not be beneficial for investors.
Taylor, SL, Lee, M & Lee, PJ 2000, 'Unit Initial Public Offerings: Staged Equity or Signaling Mechanism'.
Brown, PR, Taylor, SL & Walter, TS 1999, 'The impact of statutory sanctions on the level and information content of voluntary corporate disclosure', Abacus: a journal of accounting, finance and business studies, vol. 35, no. 2, pp. 138-162.
This article examines the effect of statutory civil and criminal sanctions on voluntary corporate disclosures by firms listed on the Australian Stock Exchange (ASX). Apart from direct investigation of the quantity of voluntary disclosure, we also investigate several possible consequences of altered corporate disclosure policies, namely properties of analysts' forecasts, the degree to which share prices anticipate the information content of periodic earnings reports, and the relationship between volatility and corporate disclosures. Results suggest that, post-sanctions, any increase in voluntary disclosure is confined to smaller firms and those which performed relatively poorly. Moreover, analysts' earnings forecasts did not become more accurate or less diverse following the introduction of statutory sanctions, and there was no statistically significant increase in the weight placed on each disclosure's ability to explain return volatility. There is some evidence that share prices have anticipated earlier the value relevant components of annual periodic accounting data, although this result is again confined to smaller firms. Although the tests used are not independent and have a limited time period post-sanctions, the results cast doubt on the extent to which the imposition of substantive civil or criminal sanctions affects corporate disclosure policy.
Eddey, P & Taylor, SL 1999, 'Directors' recommendations on takeover bids and the management of earnings: Evidence from Australian takeovers', Abacus: a journal of accounting, finance and business studies, vol. 35, no. 1, pp. 29-45.
This article investigates whether Australian companies manage their earnings during takeover bids in a manner consistent with the earnings-management hypothesis. This hypothesis predicts that directors who reject a bid use accrual accounting to increase current earnings, supporting their claim that the bid, relative to earnings, is inadequate. Likewise, directors who accept a bid are predicted to use accrual accounting to decrease current earnings. Overall, the results are not consistent with the earnings-management hypothesis. However, some components of unexpected accruals (our proxy for managed earnings) change in the direction predicted by the earnings-management hypothesis, although these changes are not statistically significant. Using industry adjusted performance measures the conclusion is that unexpected accruals are primarily a manifestation of poor financial performance of target firms in the period leading up to the takeover bid.
Lee, PJ, Taylor, SL & Walter, TS 1999, 'IPO underpricing explanations: Implications from investor application allocation schedules', Journal of Financial and Quantitative Analysis, vol. 34, no. 4, pp. 425-444.View/Download from: Publisher's site
Izan, H, Sidhu, B & Taylor, SL 1998, 'Does CEO pay reflect performance? Some Australian evidence', Corporate Governance - An International Review, vol. 6, no. 1, pp. 39-47.
Taylor, SL & Whittred, G 1998, 'Security design and the allocation of voting rights: Evidence from the IPO market', Journal of Corporate Finance, vol. 4, pp. 107-131.
Craswell, A, Taylor, SL & Saywell, R 1997, 'Insider ownership and corporate value: Australian evidence', Pacific-Basin Finance Journal, vol. 5, pp. 301-323.
Craswell, AT, Taylor, SL & Saywell, RA 1997, 'Ownership structure and corporate performance: Australian evidence', Pacific Basin Finance Journal, vol. 5, no. 3, pp. 301-323.View/Download from: Publisher's site
The published analytical and empirical evidence on the impact of ownership structure on corporate performance is conflicting. In this paper, the relationship between the distribution of equity ownership and corporate performance is investigated for 349 publicly traded Australian firms in 1986 and 1989. The results weakly support a curvilinear relationship between insider ownership and corporate performance, although the relationship is both temporally unstable and inconsistent across different firm-size groups. The evidence does not support institutional ownership as an important determinant of Australian corporate performance. Potential explanations for these results include the low explanatory power of relatively general models of optimal managerial and institutional ownership, the temporal instability of any optimal equity ownership structure and the probable endogeneity of ownership structure. © 1997 Elsevier Science B.V.
Eddey, P, Lee, K & Taylor, SL 1996, 'What motivates going private?: An analysis of Australian firms', Accounting and Finance, vol. 36, no. 1, pp. 31-50.
We investigate going private transactions in Australia between 1988 and 1991. Approximately ten percent of all takeovers during this period are instances of going private. In contrast to studies of similar transactions in the United States, we find no direct evidence to support a free cash flow explanation for going private, although going private is frequently preceded by the threat of a takeover offer. However, the free cash flow explanation for going private may not be applicable in Pacific Basin countries where exchange-traded investment activity is in relatively high growth sectors and foreign ownership accounts for a large part of those investment sectors where managerial abuse of free cash flow has been alleged.
We analyse both initial underpricing and post-listing returns for Australian IPOs. Our results are consistent with the view that unique institutional characteristics may have overwhelmed previous Australian tests of equilibrium models of IPO underpricing. The results also show that Australian IPOs significantly underperform market movements in the three-year period subsequent to listing. Further investigation of these anomalous post-listing returns lead us to reject various `speculative bubble explanations. Rather, the evidence suggests a curvilinear relationship between initial and subsequent returns, although the economic significance of the relationship is low.
Lee, PJ, Taylor, SL & Walter, TS 1996, 'Expected and realised returns of Singaporean IPOs: Initial and long run analysis', Pacific-Basin Finance Journal, vol. 4, pp. 153-180.
Arthur, N & Taylor, SL 1995, 'Takeover markets and corporate board composition: some further evidence', Corporate Governance - An International Review, vol. 3, no. 4, pp. 218-229.
Craswell, A, Francis, JR & Taylor, SL 1995, 'Auditor brand name reputation and industry specialisations', Journal of Accounting & Economics, vol. 20, no. 3, pp. 297-322.View/Download from: Publisher's site
The development of both brand name reputation and industry specialization by Big 8 auditors is argued to be costly and therefore to increase audit fees. For a sample of 1484 Australian publicly listed companies we estimate audit fee premia for Big 8 auditors. On average, industry specialist Big 8 auditors earn a 34% premium over nonspecialist Big 8 auditors, and the Big 8 brand name premium over non-Big 8 auditors averages around 30%. These results support that industry expertise is a dimension of the demand for higher quality Big 8 audits and a basis for within Big 8 product differentiation.
Taylor, SL 1994, 'Executive share options: an economic framework', Australian Accounting Review, vol. 4, no. 2, pp. 13-21.
Arthur, N, Garvey, G, Swan, PL & Taylor, SL 1993, 'Agency theory and 'management research': A comment', Australian Journal of Management, vol. 18, no. 1, pp. 93-102.
Recent changes to prospectus regulations have generated considerable controversy. While the legally enforceable definition of "required information" may be uncertain, it seems clear that earnings forecasts are expected to play an important role. However, we find that the accuracy of these forecasts is questionable, as are many of the explanations offered for differences with the actual results. This calls into question the methods used for estimating future earnings and, ultimately, the usefulness of such forecasts. Laws relating to liability for prospectus information make this an issue of some concern for investors, as well as accountants and other professional advisers. © 1993 CPA Australia
Lee, PJ, Taylor, SL, Yee, C & Yee, M 1993, 'IPO earnings forecasts: accuracy and explanations', Australian Accounting Review, vol. 3, no. 1, pp. 21-32.
Craswell, A & Taylor, SL 1992, 'Discretionary disclosure of reserves by oil and gas companies: An economic analysis', Journal of Business Finance & Accounting, vol. 19, no. 2, pp. 295-308.
Taylor, SL 1992, 'The role of time series analysis in studies of accounting policy choice: A comment', Accounting and Finance, vol. 32, no. 2, pp. 51-56.
The study by Anderson and Zimmer  of goodwill accounting policies uses a pooled time series experimental design. This approach can add substantially to our understanding of accounting policy choices, but not in the manner used by Anderson and Zimmer. Where accounting policy choices are believed to be independent from one period to the next, then a time series approach can greatly enhance our ability to capture the influence on such policy choices of changing circumstances, more so than a simple cross-sectional test. Conversely, if accounting policy choices are not independent between periods, pooling over time can overstate significance levels of statistical tests. The nature of Anderson and Zimmer's data makes the impact indeterminate. However, even under an extreme assumption, pre-regulation evidence remains significant at conventional levels.
Craswell, A & Taylor, SL 1991, 'The market structure of auditing in Australia: the role of industry specialization', Research in Accounting Regulation, vol. 5, no. 1, pp. 55-77.
Taylor, SL 1990, 'Put-call parity: Evidence from the Australian options market', Australian Journal of Management, vol. 15, no. 1, pp. 203-216.
Taylor, SL, Tress, R & Johnson, L 1990, 'Explaining intraperiod accounting choices: The reporting of currency translation gains and losses', Accounting and Finance, vol. 30, no. 1, pp. 1-20.
Prior to the introduction of an Australian Accounting Standard relating to the treatment of foreign currency items, we find agreement among firms on the method of translating foreign subsidiaries' assets and liabilities, but no such agreement on the method of reporting the resulting gain or loss. The reporting choice represents an intraperiod accounting decision. We show that this choice is a function of the demand for ex ante optimal risk sharing agreements between management and shareholders, although auditor identity and firm size are also found to influence the choice of reporting method. We model the policy choice as both a dichotomous and a more finely graded three-way problem, introducing to the accounting literature an experimental technique designed to test for the existence of any mutual dependence between alternatives.
This paper reports the results of an examination of the time series properties of a range of accounting numbers and ratios which may be associated with firm valuation. The work extends earlier research, which has concentrated on earnings or its derivatives, and which has found that earnings numbers follow a random walk or similar stochastic process. The tests reported in this paper suggested that, during the 25 year period studied, annual changes in a wide range of accounting variables also were, for the most part, random. Significant departures from randomness occurred only in variables where there were a priori reasons for believing that serial dependence would exist. © 1988 Accounting and Finance Association of Australia and New Zealand
Taylor, SL 1987, 'International accounting standards: an alternative rational', Abacus: a journal of accounting, finance and business studies, vol. 23, no. 2, pp. 157-171.View/Download from: Publisher's site
International aspects of financial reporting have begun to receive an increasing amount of attention by a range of organizations. There is a need then, to appraise critically the performance and the underlying rationale of those agencies responsible for influencing international practices. Identification and appraisal of the rationale underlying the existence of those agencies is a necessary step in determining their potential for achieving the objectives which they have been set. This paper examines the rationale behind one of these agencies, the International Accounting Standards Committee (IASC, 1977). Unlike many others, the paper does not attempt to explain why we should have an organization such as the IASC and the standards it produces. Rather, it represents an attempt to explain why we do have an organization such as the IASC. To that end, an alternative rationale is suggested for the output of the IASC, based on theories of professional self-interest, agency, and property rights. It is argued that that rationale is likely to have significantly greater explanatory power in respect of the present output produced by the IASC than those traditionally presented.
Taylor, SL 1986, 'Analysing financial statements: how many variables should we look at?', JASSA, vol. -, pp. 20-25.
Taylor, SL 1986, 'Currency translation gains and losses: regulation for regulation's sake', International Accounting Bulletin, vol. -, pp. 9-10.
Brown, P, Taylor, SL & Walter, TS 2013, 'The impact of statutory sanctions on the level and information content of voluntary corporate disclosure' in Financial Accounting and Equity Markets: The Selected Essays of Philip Brown, pp. 207-231.View/Download from: Publisher's site
Lai, C, Stokes, D & Taylor, SL 2006, 'Accounting & audit quality surveillance: a working solution for regulators & exchanges' in Skeete, H (ed), The Handbook of World Stock, Derivatives & Commodity Exchanges, Mondo Visione, Knebworth, UK, pp. 69-70.
Friedrich, C, Stokes, D & Taylor, SL 2004, 'Applications of corporate governance technology to accounting and audit quality surveillance.' in Skeete, H (ed), The Handbook of World Stock, Derivative and Commodity Exchanges., Mondo Visione, Datchworth, UK, pp. 127-131.
Coulton, JJ, Ruddock, C & Taylor, SL 2012, 'The informativeness of dividends and franking credits', AFAANZ Conference, AFAANZ, Melbourne, Australia.
Lai, C, Li, Y & Taylor, SL 2012, 'The impact of IFRS on accrual reliability', American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting, American Accounting Association, Washington, DC.
Shan, Y, Taylor, SL & Walter, TS 2011, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', Finance and Corporate Governance Conference, La Trobe University, Melbourne, Australia.
Shan, Y, Taylor, SL & Walter, TS 2011, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', JCAE Symposium, Journal of Contemporary Accounting and Economics, Hong Kong.
Taylor, SL, Shan, Y & Walter, TS 2011, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', 34th Annual Congress - European Accounting Association, European Accounting Association, Rome, Italy.
Shan, Y, Taylor, SL & Walter, TS 2010, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', American Accounting Association Conference on Teaching and Learning in Accounting, American Accounting Association (AAA), American Accounting Association, San Francisco, California.
Shan, Y, Taylor, SL & Walter, TS 2010, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', Annual Conference of the Multinational Finance Society, Barcelona, Spain.
Li, Y, Stokes, D, Taylor, SL & Wong, L 2009, 'Audit quality, earnings quality and the cost of equity capital', Program American Accounting Association Annual Meeting, American Accounting Association Annual Meeting, American Accounting Association (AAA), New York.
Li, Y, Stokes, D, Taylor, SL & Wong, L 2009, 'Audit quality, earnings quality and the cost of equity capital', 2009 AFAANZ Conference, Accounting and Finance Association of Australia and New Zealand Conference, AFAANZ, Adelaide, Australia, pp. 1-31.
We investigate the influence of audit quality on the relation between earnings quality and cost of equity capital. We utilize total accruals as a measure of earnings quality and auditor choice, auditor effort and auditor opinion based audit quality proxies used in the prior literature for audit quality dimensions to estimate a cost of equity model for a sample of firm years where auditing and audit quality is likely to be in higher demand. We find that higher audit quality is associated with significant mitigation of the positive relation between total accruals and the cost of equity capital and the presence of a qualified audit opinion issued by the auditor increases the extent to which lower quality accruals are associated with an increased cost of equity capital.
Shan, Y, Taylor, SL & Walter, TS 2009, 'Errors in estimating unexpected accruals in the presence of large changes in net external financing', 2009 AFAANZ Conference, Accounting and Finance Association of Australia and New Zealand Conference, AFAANZ, Adelaide, Australia, pp. 1-54.
We demonstrate that the articulation among accruals, cash flows and revenues which is typically assumed in tests of earnings management does not hold when large (positive or negative) external financing activities are present. Our study provides evidence that managers normal operating decisions associated with net external financing activities are likely to lead to economically and statistically significant measurement errors in unexpected accruals. This is a serious concern given the frequency with which the partitioning variable used to identify instances of alleged earnings management is correlated with significant movements in net external financing. Simulation tests show that even at modest levels of net external financing changes, rejection frequencies for the null hypothesis of no earnings management rise dramatically
Shan, Y, Taylor, SL & Walter, TS 2009, 'Fundamentals or managerial discretion? The relationship between accrual variability and future stock return volatility', Program American Accounting Association Annual Meeting, American Accounting Association Annual Meeting, American Accounting Association (AAA), New York.
Shan, Y, Taylor, SL & Walter, TS 2008, 'The uncertainty of non-accounting information in analysts' forecasts and stock return volatility', Program of American Accounting Association Annual Meeting, American Accounting Association Annual Meeting, American Accounting Association (AAA), Anaheim, USA.
Stokes, D, Taylor, SL, Hamilton, JM & Ruddock, C 2006, 'Audit partner rotation and earnings quality', American Accounting Association 2006 Annual Meeting, American Accounting Association Annual Meeting, American Accounting Association, Washington, USA.
Stokes, D, Taylor, SL, Hamilton, JM & Ruddock, C 2006, 'Audit partner rotation and earnings quality.', Eeuropean Accounting Association Annual Meeting, Dublin, Ireland.
Hamilton, JM, Ruddock, C, Stokes, D & Taylor, SL 2005, 'Audit partner rotation and earnings quality', International Symposium on Audit Research, International Symposium on Audit Research, -, Singapore.
Lai, CY, Li, Y, Shan, Y & Taylor, SL 2013, 'Costs of Mandatory IFRS: Evidence of Reduced Accrual Reliability'.
This study investigates the impact of mandatory adoption of International Financial Reporting Standards (IFRS) on accrual reliability (Richardson et al. 2005). Using a large sample of Australian firm years drawn from before and after the mandatory adoption of IFRS, we find that accrual reliability declined significantly after mandatory IFRS implementation. Working capital, non-current operating, and financing accruals all contribute to this decline. We also find that brand name audit firms (i.e., the Big four) are able to significantly attenuate any decrease in accrual reliability during the post-IFRS period. Our results contrast with evidence identifying benefits of mandatory IFRS such as increased value relevance, but are consistent with at least some degree of trade-off between relevance and reliability. Such trade-offs seem to have been largely ignored in prior examinations of the impact of mandatory IFRS.
Between 1982 and 1987, the Australian audit market experienced an
increase in price competition resulting from changes in professional
rules governing advertising and marketing practices as well as the
introduction of widespread audit tendering. Because these changes
are generally assumed to have reduced any alleged ability of the Big
Eight to earn oligopoly profits, they provide an opportunity to test
alternative explanations for the observed Big Eight audit-fee
premia. If the market was not competitive, the Big Eight premium
may be the result of market imperfections and the changes in
professional rules could be expected to lead to a decline in the
premia. Alternatively, if the market was competitive and the premia
were attributable to product differentiation, it would be
sustainable notwithstanding deregulation of the market. The initial
analysis of panel data of publicly reported audit fees for a six-
year period suggests that reductions in real audit fees are more
marked among Big Eight clients and occur more quickly in response to
a change of auditor. However, using seemingly unrelated regression
it appears that structural adjustments were made to the audit-fee
process and the Big Eight premium did not decline over the six year
period. This result does not support allegations that Big Eight fee
premia result from a relatively uncompetitive audit market.